Advanced Technical Analysis
Note: the following analysis is formulated as an assimilation of Fibonacci, DeMark, Elliott Wave and other technical indicators. It is offered as education and not intended as advice in any way.
Monday and Tuesday's action has done little to confirm that some degree of top has likely been put in for the SPX, the INDU and the Nasdaq composite. The NDX and the SOX remain below their recent swing peaks (0.8% and 6% respectively) so that intramarket divergence remains in place. Of the lesser technical indicators we look at (momentum, ticks, breadth, and volatility), there is little new to note: hourly momentum is diverging nicely now, ticks are diverging somewhat, breadth is inconclusive (though still technically below its best levels of this advance (way back on 11/17), and volatility has now picked up for two days in a row, rising 10% in two sessions, and thus now not confirming the (near) new peaks in the SPX and INDU which have just a few basis points to go before registering new swing peaks.
Volume for the last three sessions has been below 1 billion shares, remarkably light and thus making price swings somewhat volatile. There is little to note about up vs down volume or put/call ratios.
The only truly important technical conditions we await are hourly DeMark trend exhaustion indicators (daily has already registered) and a completed Elliott Wave pattern. Neither the SPX nor the INDU have registered yet hourly DeMarks yet (though the Nasdaq Composite is one hour away) but they are close. As for the Elliott Wave pattern, the short term is open to a few different acceptable interpretations which make pinning down a particular number a touch difficult right here.
Suffice it to say that we remain in the heart of a cluster of very important Fibonacci resistance of weekly and daily degree. Given the ambiguity of the hourly technical measures we look at, the lack of some hourly DeMarks, the positive seasonal bias into the first week of January, and the lack of volume, we have expressly favored patience here awaiting a cleanly impulsive (5 wave) break down in price. Do not misjudge our bias here: it is squarely bearish over the next few weeks, months, and potentially longer depending on "how" prices break from current levels.
But we have found that awaiting the "5" wave move down that signals a higher confidence of trend reversal is the best risk/reward strategy for positioning for weakness amidst strong markets. And given the all-time record sentiment, the record long positions in the futures by speculators, and all the other conditions we have laid out over the last several weeks in these pages, clearly this is a strong market. Patience is key. We are close, possibly days away from a meaningful peak in stocks in our view. But no need to catch a falling knife: and this one is as sharp as it has been in years.
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